Update from Nathan Woods, head of The Trust Company’s Investment Committee, about the Markets’ recent activities and how we’re keeping your best investment interests in mind.
Momentum from the first quarter carried-over into the second quarter, with most asset classes finishing with positive gains for Q2.
While concerns persisted over the potential for rising rates, bonds generally posted moderate gains for the quarter.
- The Federal Reserve raised its key benchmark rate in June (as had been widely anticipated), though strong investor demand coupled with weaker-than-anticipated inflation figures ultimately aided investment-grade bond performance (the Barclays Municipal Bond 5-Year Index and Barclays Aggregate Bond Index gained +1.2% and +1.4%, respectively).
- Weaker inflation readings led to a slight decline for inflation-protection bonds (TIPS) (-0.4%).
- In the high yield space, spreads continued to compress, resulting in a +2.2% gain.
- Global currencies rallied sharply against the dollar, as investor sentiment turned more bullish about economic recoveries outside the U.S.; the dollar’s -5% slide for the quarter enhanced unhedged foreign investment returns…..international developed (unhedged) bonds and emerging market (unhedged) bonds gained +3.5% and +3.6%, respectively.
Strong corporate earnings and accelerating global economic growth led to notable gains for global equities.
- Domestically, while economic data was somewhat mixed for the quarter, U.S. corporations continued to post strong earnings and consumer confidence remained high which pushed U.S. equities higher (Large Cap +3.1%, Small Cap +2.5%).
- Internationally, investor sentiment improved markedly following the French presidential election in which Macron defeated the anti-EU, populist candidate Le Pen and upon signs of improving economic growth (MSCI Europe +7.7%; MSCI EAFE +6.4%).
- Emerging Markets rallied further for the quarter (+6.4%), propelled by strengthening EM economies and a declining U.S. dollar.
- Domestic and global REITs posted modest gains (+1.5% and +3.6%), while sharp declines in energy prices contributed to negative performance for Commodities (-3.0%) and MLPs (-6.4%).
- Diversification continues to strongly benefit portfolios, with the most meaningful YTD returns coming from areas such as Domestic Large Cap Growth Equities, International Equities, Emerging Market Equities, and Global Bonds.
- TTC Equity Models earned +4.1% for the second quarter, which brought the overall return to +11.8% year-to-date (YTD) through June 30th. TTC Bond Models have increased approximately 7.5% YTD, up approximately 3.3% for the quarter.
As we move into the second half of 2017, we continue to remain cautiously optimistic. It’s our continued belief that investors should be patient and adhere to a well-constructed and thoughtfully diversified plan anchored to your goals and time horizon. Therefore, we plan to make allocation changes across our models to position investors for the remainder of 2017 as well as the coming years. Your relationship manager will be in touch with you to review these changes.